Budget Editorial: Hammond’s Dogma Ignores the Stormy Present
The new chancellor, half a year into his job, has already given his last Spring Budget. Henceforth budgets will take place in autumn. Also gone are the theatrical days of Gordon Brown and George Osborne: this is a chancellor who revels in nickname ‘Spreadsheet Phil’.
Hammond’s first full budget was an attempt to bring together the themes of Theresa May’s government. It was a budget that acknowledged the challenges that Brexit poses to the British economy but also the prime minister’s priorities of creating a country that works for everyone.
Despite the challenging circumstances, Hammond was able to announce that cumulative borrowing has been revised down since the Autumn Statement, a small improvement: public sector net borrowing as a percentage of GDP is also predicted to fall from 3.8% last year to 2.6%. Fortunately for him, he was able to announce that growth forecasts for 2017 have been scaled up from 1.4% to 2%. The revision marks the biggest increase since the Office for Budget Responsibility was founded but is a one off.
However, the chancellor was also forced to admit that the OBR had cut its future growth forecasts. The .1% might not like much on the spreadsheet but it was a clear sign that they judged that the negative economic impact of Brexit has merely been delayed. With the lower growth went the idea of a £60bn "war chest".
The change in tone from the last chancellor was demonstrated by his boast that the highest 1% are paying the highest rates of tax in decades. He also announced a 1% hike in National Insurance for self-employed while protecting those whose income is less than £16,250 per annum - the just about managing “white van man”. The hike itself will raise £4.5bn over four years and, with further increases in the future, risks Tory rebellion.
On business rates Hammond made a number of concessions, including reform in due course, a £300m fund for councils and exemptions for 90% of pubs. He also confirmed, much leaked, that UK corporation tax will fall to 17% by 2020, making it the lowest rate in the G20.
Hammond’s finale was an announcement of a green paper later in the year and £2bn over three years for social care. More than pre-briefed but woefully short of what is needed. Having cornered himself in opposition he was unable to announce a “death tax”.
It was what was missing that glared.
The government, once defined by its mission to bring the deficit down, has absolved itself of all responsibility
Since 2010, the Tories have delayed their debt targets three times. In 2016, the OBR judged that the government had broken its own deficit rules and the Institute for Fiscal Studies now says fiscal policy is ‘not currently subject to any fiscal targets that can be met or missed in this parliament’. The government, once defined by its mission to bring the deficit down, has absolved itself of all responsibility.
Weeks after a chaos in the NHS, described by the Red Cross as a “humanitarian crisis”, Hammond has practically ignored healthcare. His announcement of an extra £100m for A&E next winter is only another sticking plaster. The hard choices - brought about by an ageing population - of whether to continue to increase NHS spending as a proportion of GDP, and new mechanisms for funding future health care were not addressed.
Since 2010, health spending has increased in real terms, but at a rate slower than at any point in the last sixty years; because of cuts elsewhere its spending makes up a larger percentage of the budget than it did five years ago. However, this masks the Tories’ lamentable failure on the NHS: the percentage of patients seen in A&E within four hours has dropped by 10 per cent to 88 per cent; 1.3 million more people are waiting for treatment now than in 2009; waiting lists have grown faster than population increases; the eight minute ambulance response target of 75% has not been met since May 2015.
On social care Hammond has avoided rather than tackled. His announcement was too little: the IFS has pointed out that real terms spending on adult social care has fallen: there is a massive funding gap that will increase as the population ages. His £2bn does not address the £4.6bn funding gap.
There was further avoidance in areas meant to be priorities: there was absolutely nothing about the tax credits and universal credits cuts which will hit the working poor over the next three years; his budget did nothing to address the widening productivity gap between Britain and Europe. In office, Labour narrowed the productivity gap between the United Kingdom and eurozone countries. Now it his widening again.
There is one reason why Hammond has so little room for manoeuvre despite the modest improvement in the public finances: Brexit.
Brexit will rage and Hammond has done nothing
The budget has done little to prepare the country for the storms ahead as Britain exits the European Union. While avoiding triumphalism, he has been forced to adopt a position of blind optimism, encouraged by the temporary rise in growth and better deficit numbers. This cannot long continue: the OBR has calculated that the cost of Brexit to the public finances is an extra £58bn of debt. The fall in sterling since the referendum means higher inflation that will hit living standards, already hit by weak earnings growth. Brexit will rage and Hammond has done far, far too little.
Theresa May declared a new government when she became prime minister. She talked of creating a different country and appeared to draw a line under the Cameron era. Whether it is her caution or divisions with her chancellor, this has not happened. This government will become defined, as its predecessor was, by failure not radicalism.
“The dogmas of the quiet past, are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion,” said Lincoln.
Whatever figures he is able to give, Brexit makes the present tempestuous. Philip Hammond rose to the dispatch box to give his first and last spring budget. He did not rise to the occasion.
About the author
Disclaimer is a group of writers, journalists, and artists who have been brought together by their desire to tackle serious issues with a light and humorous touch. A mixture of idealists and pragmatists, Disclaimer is socially very liberal, economically less so. The editorial stance is formed collectively, based on the shared values of the magazine. Gonzalo Viña founded Disclaimer with the help of Phil Thornton who oversees the economics coverage. Graham Kirby is the editor.
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